Govt Unveils Draft Tax Law Consultation

The Department of Finance today released for consultation draft legislative proposals to implement a range of previously announced tax measures. The proposed changes aim to clarify and improve tax rules, close gaps to prevent tax avoidance, and ensure existing measures work as intended.

These measures also support broader economic objectives, including investment, productivity, and clean growth, while making the tax system easier to administer and understand.

The government invites stakeholders to provide feedback to ensure the legislation is effective, fair, and aligned with its policy objectives.

Budget 2025 Measures

• Proposed amendments to the Income Tax Act to improve the clarity and coherence of the qualified investment regime for registered plans.
• Proposed amendments to the Income Tax Act to expand an anti-avoidance rule that currently only applies to direct trust-to-trust transfers to include indirect trust-to-trust transfers.
• Proposed amendments to the Income Tax Act to support the winding down of mechanisms to return fuel charge proceeds by providing that no Canada Carbon Rebate payments would be made in respect of tax returns, or adjustment requests, filed after October 30, 2026.
• Proposed, as part of the Productivity Super-Deduction, legislative amendments to the Income Tax Act to provide immediate expensing for manufacturing or processing buildings that are acquired on or after Budget Day and that are used for manufacturing or processing before 2030, followed by a four-year phase-out.
• Proposed legislative amendments to the Income Tax Act to prevent the deferral of corporate income tax on investment income by interposing corporations with staggered year ends.
• Proposed to amend the Income Tax Act to clarify, for the purpose of determining eligible activities under the Canadian Exploration Expense, that expenses incurred for the purpose of determining the quality of a mineral resource in Canada do not include expenses related to determining the economic viability or engineering feasibility of the mineral resource.
• Proposed to amend the Income Tax Act to clarify that income derived from assets held by a foreign affiliate of a Canadian insurance company that support Canadian insurance risks is taxable in Canada.

2024 Fall Economic Statement Measures

• Technical changes to proposed amendments to the Income Tax Act to require additional information reporting for non-profit organizations.
• Proposed expansion under the Clean Hydrogen investment tax credit of eligible hydrogen production pathways to include hydrogen produced from methane pyrolysis. This change would apply as of the availability of methane pyrolysis as an eligible pathway (December 16, 2024).

Previously announced measures

• A second package of amendments to the Income Tax Act, as proposed in Budget 2021, implementing recommendations of the report under Action 2 of the OECD/G20 Base Erosion and Profit Shifting project, titled Neutralising the Effects of Hybrid Mismatch Arrangements.

Technical changes to existing measures

• Proposed technical changes to the Clean Hydrogen investment tax credit would address technical issues to align the measure with policy intent and facilitate administrative efficiency by clarifying the legislation. These changes are proposed to apply as of the start date of credit availability (March 28, 2023).
• Proposed technical changes to the Carbon Capture, Utilization, and Storage investment tax credit (CCUS tax credit) would address technical issues to align the measure with policy intent and facilitate administrative efficiency by clarifying the legislation. It is also proposed that the designation of specific geological formations be permitted under the CCUS tax credit, which would provide greater flexibility to Environment and Climate Change Canada for the approval of provincial regulations. These changes are proposed to apply as of the start date of credit availability (January 1, 2022).
• Proposed technical amendments to the Global Minimum Tax Act, introducing a "de-consolidation" rule to allow a private corporation that controls a publicly listed corporate group to calculate the top-up tax of the controlling private entity (and any other private corporations that it controls) separately from the controlled public group. These amendments were originally released in draft form in the summer of 2025 and have been modified to address tax avoidance as well as stakeholder concerns.